Financial crisis: Can – or should – China do more?

It’s no secret that China has become the world’s factory, manufacturing and exporting just about everything in the years since the late communist leader Deng Xiapoing launched his “socialism with Chinese characteristics” economic reforms in 1978. China also has become one of the main creditors of the government of the United States, which George W. Bush and his federal-treasury raiders did such a great job of bankrupting in such a short time.

Now, with the still-unfolding global credit crisis that began with the subprime-mortgage scandal in the U.S. and has kept spreading, spreading, spreading, affecting banks and stock markets around the world, some observers are wondering aloud if China should actively intervene to help ameliorate the mess.

In Beijing this past Saturday, Chinese Premier Wen Jiabao clapped at the closing session of the Asia-Europe Meeting

More than 40 national leaders took part in the Asia-Europe Meeting that concluded in Beijing this past weekend. “After a week of growing economic gloom and plunging stock markets,…[they] emerged from two days of talks…pledging to comprehensively reshape the world’s financial system. They said concrete steps would be taken at an emergency meeting in Washington next month of 20 industrialized and emerging powers, including Australia.” The Asian-European leadership gang “pledged to undertake effective and comprehensive reform of the international monetary and financial systems.” The conference participants also “agreed to take quickly appropriate initiatives in this respect, in consultation with all stakeholders and the relevant international financial institutions.” (Australian)

China’s premier, Wen Jiabao, told the summit: “The global financial crisis has been constantly spreading and worsening, creating a severe shock to global economic growth….We need to draw lessons from this crisis….We need financial innovation to serve the economy better. However, we need even more financial regulation to ensure financial safety.” Wen confirmed that China will take part in another global-crisis confab that will take place in Washington on November 15. The statements that came out of this past weekend’s Beijing conference “appeared to be more a show of unity to a frightened public as the global financial crisis deepened, with no actual firm plans presented, according to some economists and analysts.” (Australian)

A rag-and-bone merchant wheeled his empty cart through central Seoul earlier this month; South Korea, with Asia’s fourth-largest economy, recently announced sweeping measures to try to rescue its markets, which have been dragged down in the global financial crisis

According to the Manila Bulletin, the government of Philippine President Gloria Macapagal-Arroyo has expressed its “optimism” and has suggested that it believes “China will ‘step into the plate’ [sic] and contribute [the] lion’s share in the proposed establishment of a ready-credit facility of [more than] $80 billion to rescue poor nations in the region from the tumultuous effects of the worldwide financial meltdown.” Apparently, “the Philippines is hopeful that China [will] take the lead in convincing other rich nations” to contribute to such a fund, too. Notes the Manila Bulletin: “President Arroyo and leaders of other developing countries in Southeast Asia are reportedly pursuing an 80-to-20 percent sharing in which the three leading economies [in the region] – [those of] China, Japan and South Korea – will contribute the bigger portion.” At the just-ended Asia-Europe Meeting, Arroyo made an appeal for the “‘poor and dispossessed’ countries in the world,” arguing that they “should be the first ones to be shielded as the international community pursues the right prescription to address the destructive effects to the economy of the global financial meltdown.”

An editorial in the New York Times today notes that, as “the world tips into recession, China’s economic decisions could affect how other countries fare in the downturn.” The editorial pronounces: “Over the last 30 years, China has hitched its economy to the industrial world, exporting cheap goods to the United States and other developed nations, building up an enormous trade surplus that will hit about $400 billion this year. As those industrial economies sputter, China is now in a position to pick up some of the slack: selling more of its own goods at home and buying more from the rest of the world. To get China’s consumers to spend, the government will need to spend more at home, investing in public works projects and providing more social benefits – including health insurance and pensions….This is clearly in Beijing’s interest, though China’s leaders are still clinging to the old export strategy.”

On the Chinese side, some policy-makers might not like being told what to do; after all, haven’t certain aspects of the Western-capitalist, government-spending economic model led directly to the dire straits in which some Western governments find themselves now in the face of the worldwide financial crisis? And what’s a newspaper from a bankrupt country with a “wildly inefficient health-care system, which consumes 16 cents of every dollar in the U.S. economy but leaves 47 million people uninsured” (U.S.A. Today) doing telling China how to run its own health-care system?

Earlier this month, stockbrokers relaxed at the Indonesia Stock Exchange in Jakarta, where trading was suspended for two days in the midst of the unfolding, worldwide financial crisis

This past Saturday, at the meeting in Beijing, Chinese Premier Wen looked ahead and said: “We will discuss with world leaders…measures to cope with the financial crisis in a pragmatic and cooperative manner….We are very glad to see that many countries have taken measures that have initially proved effective. But this is not enough given the current situation, and more needs to be done…The first important message that [this] two-day summit has conveyed is firm confidence, and I think confidence is the source of power to overcome difficulties.” (Xinhua) One possible translation of that positive-sounding diplomatic gobbledygook: “We’re willing to talk but don’t go pressuring China. Remember, we didn’t start this global financial-crisis mess.”

Commentator Will Hutton, in yesterday’s Observer (U.K.), argues that looking to wealthy China to step in and somehow solve the current global crisis is a form of “fashionable foolishness that ignores some brute realities. The first is that Asia, except Japan, remains in essence a subcontractor to the West. Two-thirds of China’s exports…are made by foreign companies [that] essentially reprocess imports of semi-manufactured goods that are then shipped to Europe and the U.S.” Hutton notes that it’s unrealistic to assume that “Asia [is] set to prop up the shattered Western economy.” After all, right now, “Asia’s terrified financial markets, coming to terms with their region’s vulnerability, are now testimony to this profound misunderstanding. Asia is an exporter and saver, of which the best example is China….If its exports stagnate,…then its economy slows down. The rate of growth has dropped by a quarter over the last 12 months and there is every prospect of a further sizable drop over the next 12….China is saturated with ports, highways, steel mills, cement and petrochemical plants that operate at a fraction of capacity. As the realization has grown that capacity has run far ahead of now falling demand, China’s bubble economy has burst, rather like our own. Its stock market has crashed and property prices are collapsing.”

Hutton points out that the all-powerful Communist Party, which rules China, is now “considering an amazing concession.” That would be to allow Chinese peasants “to be able to buy and sell long leases on their land. This would be the biggest step towards granting property rights to 730 million rural peasants since the [Communist] Revolution. The reason? The party needs them to use their land as collateral to save less and spend more.” Thus, “China is beginning the perilous path to becoming freer because the economy demands it.” Still, Hutton concludes, “authoritarian, Asian capitalism” like contemporary China’s “is not about to triumph over the Western, liberal variant. China needs to change profoundly if it is to join the first rank of nations as their equal. Meanwhile, don’t look to it – or the rest of Asia – to soften recession. The West made this mess. It must clear it up itself.”